Wheat crop blowing in the wind

Make no mistake. This wheat market is all about Russia.

The month of May (to date) has seen CBOT rally 17% or nearly 90USc/bu as first dryness in the Russian south (Caucuses) region and then a series of frosts through the Central regions, took a bite out production forecasts. It has wiped about 8mmt off the previous season’s total of 93mmt to now being (officially) 85mmt. The range of estimates is somewhere between 80-85mmt. The forecast over the next couple of weeks remains dry, leaving the market guessing whether there will be more cuts.

Neighbouring Ukraine is also seeing moisture deficits build and it is likely that further production cuts will eventuate. The current wheat forecast is for 21mmt – compared to the 5 year average of 26mmt. The sharp rally on CBOT shook the resolve of many of the speculative/managed money traders who have quit their sold positions. The net short (sold) positions in CBOT have fallen from 96k contracts in mid April to now being around 28k, making it the least bearish outlook since Oct ’22 (according to @kannbwx).

In complete contrast – and perhaps keeping a lid on the wheat rally – conditions in the US and Canada are excellent. The annual crop tours across the US revealed above average yield prospects. Kansas estimate came back at 46.5bu/ac (3.1t/ha) vs the longer term average of 42.4bu/ac (2.83t/ha).

Somewhat surprisingly, the USDA lowered the overall US winter wheat condition score by 1% to 49% good to excellent, but also noted that the total area in drought was significantly reduced. The recent rainfall has caused a few headaches by delaying seeding of corn, beans and some spring wheat, but overall, the 70% of crop that is in the ground, is enjoying ideal conditions.

Weather remains in the driving seat in terms of price direction. The Black Sea originates some 30% of the world’s wheat and is therefore critical to overall supply. While Russian production is being cut, current estimates are still above the five-year average and carry over stocks are believed to be at record levels. Export pace out of the Black Sea is not likely to diminish too much at this point in time but any further cuts to production will have the effect of lifting the floor price higher.

Next week

The wheat market started to glance at the dry conditions being experienced in WA and SA. A rain next week would be welcome for growers but also the market that is staring at uncomfortably tight global stocks to use at 13.5%..

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Data sources: SovEcon, USDA, Reuters, Rabobank, Next Level Grain Marketing, Mecardo

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